STEVE INSKEEP, HOST:
Now we're joined by Paul Krugman, who's closely following all of this. He's an economist at the City University of New York and writes about economics on his Substack and has a Nobel Prize or something. Am I right, Mr. Krugman?
PAUL KRUGMAN: That's what they tell me.
INSKEEP: OK, excellent. Congratulations. Fifty percent tariff on coffee is one of the things that Scott Horsley just mentioned. So I'll also ask you, are you a coffee drinker?
KRUGMAN: I am. I'm extremely annoyed that we're exempting Brazilian orange juice, which I don't drink, and we're taxing the coffee, which is what I live on.
INSKEEP: So let's talk about the broader effects here. We just heard about inflation, not getting really high, but creeping in the wrong direction and slowing growth. I immediately think of that old phrase from the 1970s, stagflation. Are we at risk of that?
KRUGMAN: Probably a mild case. I mean, we're - you know, reasonable numbers say we might be heading for something closing in on 4% inflation. We might be heading for - we're definitely seeing a slowdown in the economy. Whether it actually crosses the line into a recession is less clear, but it's not going to feel - it's going to feel pretty bad.
INSKEEP: I was thinking about that McDonald's number, and it seemed to be divided. McDonald's sales seem to be divided based on the income of the customer. Lower-income customers seem worried and are spending less, and McDonald's thinks that concern about tariffs has something to do with it. Their overall sales are up a little bit, so I guess higher-income people, even slightly higher income, are less worried. What do you make of that?
KRUGMAN: Well, you want to think - you know, a tariff is basically a selective sales tax. It's a tax on goods that happen to be imported. It's - foreigners do not pay it, whatever Trump may say. U.S. consumers pay it, and sales taxes are regressive. Sales taxes fall much more heavily on people in the bottom, 30% or 40% of the population, than they do on the 1%. So it's exactly what you'd expect. It would be things that cater to lower-income consumers and generally lower-income consumers in general, are going to be hurting more, and we're already starting to see that. I have to say, I'm surprised we're seeing it so soon, but here it comes.
INSKEEP: Well, let's talk about where this might be going. We have elsewhere in the program today, Mike Flood. He's a Republican representative from Nebraska. And I asked him about tariffs and why Congress is sitting back and allowing the president to raise and lower taxes when a trade court is find this is - found this is Congress' responsibility. He didn't seem to love the current situation, but he was hopeful. He said, quote, "we have to be very stable. We have to be very predictable. We don't have that right now, but I'm buying into it because I want these trade deals done." He wants to give the president at least until Christmas. What do you think of that timeline?
KRUGMAN: Well, the question is, what is the deal? I mean, supposedly, we have a deal with Europe, but with the deal, we - it's still a 15% tariff on everything Europe sells us. So that doesn't look like much of a deal. And it turns out that the Europeans have not really promised us much in return. So the deals are largely a figment of Trump's imagination. What we're really seeing is that the United States went and imposed a bunch of tariffs, and a bunch of countries said nice things in order to keep him from raising them even higher, but they haven't actually done anything. So unless the courts rule that the whole thing is illegal, which it really is, but I don't know if they're going to rule it that way, this is where we are. We're back to tariffs as high as they were 90 years ago.
INSKEEP: Let me ask about another effect of this. Tim Cook, the head of Apple, was at the White House yesterday and made a little presentation in the Oval Office to the president of Kentucky-made glass. He said, we can't make the whole iPhone in the United States, as you originally requested, but we can make the glass, and we're going to work on that. Do you see real efforts by American industry to reshore industry, which was one of the administration's goals?
KRUGMAN: It's going to be really limited. Yeah, there'll be a few things at the margin. But, you know, when an executive announces something like that in a big meeting with the president and gets some tariff exemptions as part of it, you have to wonder whether this is real or whether this is something they were going to do anyway, but it's, you know, clearly in their interest to pretend that they're doing a favor for the president. And so there's going to be a lot of splashy announcements of investments that really aren't additional, that are really just stuff that they were going to do regardless.
INSKEEP: Paul Krugman is an economist at the City University of New York. Thanks very much. It's always a pleasure talking with you.
KRUGMAN: Thank you. Transcript provided by NPR, Copyright NPR.
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